Non-competition clauses in contracts between producers and agencies have long been a source of controversy and differing interpretations. Many in California say they don't hold up, while some agency owners want them signed to at least create the perception on the agent's part that they cannot take their business with them if they leave the agency.

Such agreements have many names: covenants not to compete, anti-piracy clauses, infringement of trade secret clauses. However, all have the same objective: to prevent agents from taking their accounts with them when they leave an insurance agency. Many agents have been the targets of legal action because of these clauses. To avoid problems in the future, agents and their agency employers should make it clear at the time of hire about what will happen if their business relationship doesn't work out.

One way of resolving the issue is to give the agent a percentage of ownership in their book of business. When the agent leaves, he or she gets paid for that percentage at an agreed amount in the contract. Sometimes the calculation is the commission times the percentage of ownership the agent has in the agency. The agency can have first right of refusal to buy the agent's book, but if the agency declines to purchase, the agent should be free to take the business with him after paying the agency the agreed-on percentage. This protects the agency's original investment in writing the book and operating costs associated with servicing it. It also pays the agents for their work in selling and servicing the business. It is important to make sure the written agreement specifies what types of business the ownership refers to: is it only commercial and not personal lines? Does it only apply to accounts above a certain commission level and so doesn't include smaller policies such as business owner policies?